The budget amendments were passed at an extraordinary meeting on
Monday with a majority of 273 votes, well above the minimum 226
votes necessary to pass legislation.

According to the changes, Ukraine’s budget deficit increases from
3.7 percent to 4.1 percent of GDP. Amendments envisage the
expenses increasing by about $1.3 billion (35 billion hryvnia),
with a 21.7 hryvnia per dollar exchange rate. At the same the
cabinet plans to cut government funding of Naftogaz in 2015 by
5.8 percent to 29.7 billion hryvnia.

The changes also see a cut in pensions for retired people by 15
percent. Moreover, pension payments for people working in the
tax, customs and regulatory bodies, will be suspended. The job
tenure for people working in hazardous and heavy industries will
be gradually increased from 20 years to 25 years for men and from
15 years to 20 years for women.

The amended budget provides for increasing the rent charged for
gas production from 20 percent to 70 percent.

At the same time Ukraine’s national commission responsible for
controlling energy and utilities has more than doubled the cost
of gas to average consumers. Thus, gas used for heating will jump
230 percent to about $132 per 1,000 cubic meters.

The price for gas used in cooking and heating water is expected
to skyrocket from $43 to $263 per 1,000 cubic meters.

Ukraine is undergoing a serious political crisis that affects its
economy and the public sector, in fact, the country is on the
verge of default. Authorities hope to improve the situation by
means of foreign borrowing.

The IMF two-year loan program for Ukraine is worth $17.5 billion.
The overall financial assistance from the IMF and other sources
could be as much as $40 billion. The IMF is expected to approve
the new aid package to Ukraine on March 11, 2015.

Ukrainian Prime Minister Yatsenyuk is sure the International
Monetary Fund will agree. He says external financing will
increase foreign exchange reserves, which will help stabilize the
hryvnia which has lost around 70 percent of its value since the
crisis begun a year ago.

Nicholas Burge, the head of the trade and economic section of the
EU Delegation in Ukraine suggests the country’s reserves are a
third of what is needed. Ukrainian reserves stood at $6.42
billion on February 1, 2015, enough to cover about five months of
import.

Inflation in Ukraine is officially running at 28 percent,
American professor Steve Hanke in his blog last week suggested it was more like 272 percent.

“Hyperinflation is always and everywhere a political
phenomenon,” he said. “It happens after wars or
revolutions, when governments have to print the money they need
because there's not much of an economy left to tax—which brings
us to Ukraine.”